By 2025 value-based care delivery will account for 70 percent of total healthcare spend, and various forms of capitation and bundled payments will be ubiquitous. Patients will be treated differently, industry players will be reimbursed differently, and a whole new set of risks and opportunities will emerge.

Medical device companies that want to compete successfully in this new marketplace need to understand how their products can help payers and providers meet the challenge of increasing the value of care. Different disease areas and interventions will require different strategies, but opportunity will abound for companies willing to reshape their strategies to the market’s new requirements.

WHO’S LOOKING TO YOU FOR SAVINGS?

Devices make up a very different share of total costs in different disease areas and procedures. This chart breaks down the costs of three procedures. In hip replacement, for example, there’s not much to be gained by lowering the cost of the device itself. But in some pacemaker implantations, a 5 percent saving on the device would be equivalent to having the medical professionals work for free.

Value-Based Care: A Guide for Medical Device Companies

Value-Based Care: A Guide for Medical Device Companies

A complete transformation of the system, yes. But the market will become challenging for medical device companies before that. Most companies will feel the difference as soon as a critical mass of customers move to bundled pricing for procedures. Consider that CMS currently expects 75 percent of what it spends to be in bundled payments by 2018. That doesn’t leave much time to plan a response.

2Why is bundling so important?

It puts the focus on the total cost of care. In the old model, a provider may or may not have been indifferent to the price of a hip joint or pacemaker, but he certainly wasn’t responsible for it. With bundling, that changes. Device companies will no longer compete only with other device companies for the sale, but with doctors, pharma companies, and facilities for a share of the fixed reimbursement dollars.

3Does that mean everyone will be demanding price reductions?

Not necessarily. In the long run payers and providers will need to think about the whole population they serve. And within that population, there are some diseases so infrequent that even though they’re expensive to treat, they don’t add up to much. In other areas, there’s substantial unmet medical need, and pharma and device companies have the opportunity to create substantial value by raising the standard of care. It all depends.

4So in those areas they should focus on building better devices?

Again, not necessarily. We encourage companies to think “beyond the device” and look for ways they can improve outcomes and cut overall costs. For instance, the Affordable Care Act reduces reimbursement to hospitals with high readmission rates. That creates an opportunity. Medtronic, for instance, has just purchased a cardiac monitoring and disease management company in order to reduce readmission and thereby overall costs, creating more value for their customers and patients, and differentiating themselves at the same time.